Pending and New Home Sales Diverge in September

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Pace of contracts for new home sales FELL3 percent in September to 553,000, the lowest level since December 2016;
  • At the same time, the National Association of Realtors’ Pending Home Sales Index edged UP 0.5 percentage points to 104.6;
  • August new home sales were revised downward to 585,000 from an originally 627,000 pace, turning a 3.5 percent increase to a 3.0 percent decline; The August PHSI was revised up 104.1 from 104.0;
  • The unsold inventory of new homes INCREASED 9,000 in September to 327,000 but the inventory for August was revised downward to 313,000 from 315,000;
  • The months’ supply of new homes for sale ROSE to 7.1 in September from 6.5 in August;
  • Median price of a new home ROSE $800, 0.3 percent, from August to $320,000;
  • Year-year the median price of a new home was DOWN $11,500 (3.5 percent)
  • Year-year the PHSI fell 0.9 percentage points, the ninth consecutive month-month decline.

Trends:

  • At 327,000, the inventory of unsold new homes is at its highest level since February 2009;
  • The 9,000 increase in new homes for sale was the largest month-month increase since June 2015;
  • New home sales in September were DOWN4 percent from September 2017, the largest year-year drop since April 2011;
  • The year-year drop in the median price of a new home was the steepest since February 2017;
  • The inventory of new homes for sale INCREASED for the sixth straight month;
  • The PHSI increase was the fourth month-month improvement this year, but the weakest improvement since February when it rose 2.8 percent.

Data Source: Census Bureau and Department of Housing and Urban Development ; National Association of Realtors

The two indicators designed to forecast home sale moved in opposite directions in September showing slightly stronger existing new homes but decidedly weaker new home sales.

What to believe?

The new home sales report from the Census Bureau and Department of Housing and Urban Development showed a continued drop, falling for the fourth month in a row and fifth time in the last six months. The National Association of Realtors’ report of pending existing home sales was up for just the second time in the last six months.

The government report reflects not only buyer attitudes but the cost of building a new single-family home which has been affected by blowback from the Administration’s tariff proposals. Indeed, of the two reports, the government report is probably more meaningful with a deeper economic impact since it reflects the creation of an asset not only the transfer of an asset. Building a new home puts more people to work than selling one.

Nonetheless, existing home sales represent about 90 percent of the home sale market.

That said, the NAR report showed increased activity in the Midwest and West but a fall-off in the South and West. The South, of course was hit by major storms which would put more of an emphasis on building (or rebuilding).

The two reports are comparable because each tracks home sales contracts. The NAR’s existing home sales report deals with closings.

New Home construction is likely to be affected by rebuilding efforts from recent storms which will increase demand for both construction workers and material. With resources diverted to rebuilding we’ll likely see a drop off in home building, except for replacements.

The NAR has repeatedly cited weak inventories as the explanation for lagging sales of existing homes; that doesn’t appear to be an issue for new homes with the inventory at a nine-year high. The last sales (closings) report from the NAR put the inventory of existing homes for sale at 1.92 million, a 4.3-month supply for the third straight month.

Sales of existing homes pretty much hit a wall after the new tax plan kicked in, capping the tax deduction for homeownership (mortgage interest and real estate tax).

Hear Mark Lieberman on P.O.T.U.S. (Sirius-XM 124) Friday at 6:20 am Eastern Time. You can follow Mark Lieberman on Twitter at @foxeconomics.

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